Final answer:
Classifying new equipment as a capital expenditure is how depreciation is computed in the first year. The firm should choose production technology 2 based on it having the lowest total cost, with a shift towards less capital and more labor.
Step-by-step explanation:
When computing tax depreciation in the first year for new equipment that has a recovery period of less than 20 years, businesses typically classify it as a capital expenditure.
Investment expenditure refers to spending on new capital goods, including producer's durable equipment and software, nonresidential structures, changes in inventories, and residential structures. The first method, including 50 units of labor and 10 units of capital at $100 per unit for labor and $400 per unit for capital, results in a total cost of $9,000. With the cost adjustment for labor to $200 per unit, this calculation would vary significantly, necessitating a reassessment of the best method.
Therefore, the firm should pick production technology 2, since it provides the lowest total cost before and after the change in labor costs, indicating a shift towards less capital and more labor.